Intellectual property rights are important to all businesses. They are particularly important for companies that operate in the pharmaceutical and healthcare fields.
In the healthcare field, companies often focus on patents rights, but neglect to appreciate the importance of their trademarks. However, trademark rights are equally important for a number of reasons.
At a most basic level, trademarks are important for the bedrock rights they provide. In the United States, a trademark registration provides prima facie exclusive rights to use the registered trademark throughout the United States. That is to say that, once registered, there is a presumption that the owner possesses exclusive rights in all 50 states plus U.S. territories and protectorates. This, in and of itself, is a valuable benefit.
The United States is one of a few countries that recognize so-called common law rights. This means that use of a mark in commerce, even without a registration, may confer trademark rights dating back to the date on which the mark was first used. However, common law rights do not grant the same presumption of rights throughout the United States. If a company wishes to rely on its common law rights, it must nonetheless prove its rights in each proceeding, and may not rely on the presumption of rights granted by a federal registration. In order to rely on common law rights, a company must ensure it possesses a paper trail that establishes its rights including the date of first use, the nature of use, sample packaging and advertising, advertising expenditures, sales figures, etc.
The situation in Canada is similar. A Canadian trademark registration provides presumptive trademark rights throughout the 10 provinces and three territories.
In addition to granting presumptive rights, a federal trademark registration also helps establish the date on which a company first obtained rights to its trademark. If a trademark application is filed before use of the mark begins, U.S. trademark law – the Lanham Act – affords an applicant constructive rights in its trademark as of the filing date of the trademark application. Thus, a company may acquire constructive rights even before it begins using its trademark. However, the constructive date of first use remains effective only if a certificate of registration ultimately issues. If a mark is based on actual use in commerce, an applicant secures rights as of the claimed date of first use.
It is important to note, however, except in certain situations pursuant to international treaties, the U.S. Patent & Trademark Office will not issue a certificate of registration until an applicant proves that it is using its mark in commerce. The rationale behind this requirement is that, in the U.S., the essence of a trademark is that it is being used by its owner to distinguish its products (or services) from those of others. Accordingly, without use in commerce, there is no trademark because it is not functioning to distinguish any product or service. Without a product on the market, there can be no trademark. Additionally, it helps discourage the practice of creating a bank of trademarks that may or may not ever be used.
Two other countries also require use of a mark before a certificate of registration will issue. Notably, these countries are Canada and the Philippines. These are the exception.
Most countries do not require use before a trademark certificate of registration will issue. Rather, trademark rights are created by registration of the mark. Use is not required to obtain a registration. However, if a mark is not used for a period of time – usually five years – third parties may ask the relevant trademark office to cancel the registration for non-use. Therefore, while most countries do have some form of use requirement, most do not require use to obtain a certificate of registration.
Finally, the majority of countries do not recognize common law rights. Therefore, in most countries, trademark registrations are important.
The advantages of securing trademark registration include:
- Presumptive nationwide rights;
- Visible deterrent and constructive notice to potential infringers by use of the ® symbol;
- Citation by the Trademark Office in applications to register potentially confusingly similar trademarks; and
- Ability to grant a valid license to another party to use the trademark.
Aside from the “legal” benefits of trademark registration, there are a number of less obvious, but important, reasons to secure trademark registrations.
A trademark registration, in many countries, gives third parties constructive notice of a company’s rights in its trademark. As a practical example, if a third party is looking to adopt a new trademark for a new product, it will usually conduct a trademark search to ensure the mark is “available”. If a company’s trademark is disclosed in such a search – especially if the registration is based on actual use – this can be sufficient information to persuade the third party to forego its similar mark in favor of another mark that is less similar. Thus, a trademark registration may help discourage third parties from moving forward with a similar mark, and avoid the need to take future enforcement action.
In a similar way, registration of a trademark may help avoid FDA (or other regulatory agencies such as Health Canada) approval issues. If your company owns a trademark registration, but has not yet sought FDA approval of the “trade name,” and another company is looking to file an NDA, the disclosure of your trademark in a trademark search may be sufficient to dissuade the third party from submitting its similar mark to the FDA. Of course, the converse may also be true: That same third party may rush to file its name with the FDA (even without a trademark application) before you do because the FDA places essentially no weight on the status of trademarks at the U.S. Patent & Trademark Office. Once approved by the FDA, it is far more difficult, if not impossible, to convince the FDA that the name should not have been approved. Practically, this could require you to select another trademark – even though you own a certificate of registration for your trademark.
It may be prudent to develop a strategy whereby your company creates a trademark protection program that parallels regulatory approval. In most cases, the regulatory approval process of a new product or technology takes more time than the trademark registration process. Notwithstanding, in order to minimize the risk of spending money for registration of a trademark that may ultimately be rejected by the regulatory agency, the regulatory and trademark filing processes should track each other in a way that makes sense with your company’s specific timeline.
Depending on the company’s goals, trademark registration serves lesser known benefits.
If you are looking to license your product or technology to a third party, the existence of a trademark registration adds value to the product or technology to be licensed. It completes the process.
Companies that may be interested in licensing your product will find some assurance in the fact that a trademark has been selected and protected by a registration. Possession of a certificate of registration means that implementation of the licensee can move forward quickly with the marketing and sale of the product with the knowledge that you have selected and protected the product’s trademark, and that the relevant trademark office considers the mark available because it has issued a certificate of registration. In other words, it may act on the licensing agreement quickly without waiting for you to select, file and register the trademark that is the subject of the license.
If a start-up company is seeking funding – from a bank or a venture capital firm – the ownership of trademark rights may demonstrate to the potential funding institution that the company has assets that can be used as collateral or simply that the company is proceeding in a knowledgeable and sophisticated way. A certificate of registration establishes that the company is developing its business in a methodical and industry-appropriate manner. Likewise, valid trademarks and trademark registrations may be proffered as security interests for loans.
Acquisition or Merger
If a company’s goal is to merge with another company or to be acquired by another company, possession of certificates of registration is valuable. As discussed above in the context of obtaining funding, ownership of trademark registrations demonstrates to potential acquirers that the IP portfolio is being properly protected. Additionally, possession of trademark registrations eases the due diligence process because certificates of registration establish to potential acquirers that the company possesses presumptive nationwide (or international) rights in its trademarks. This knowledge provides some level of assurance that the company’s trademark rights are valid and less likely to be challenged by third parties.
Additionally, trademark registrations have value. Although IP rights are considered “intangible” rights, they nonetheless tangibly contribute to your company’s overall value. Therefore, a strong and well-protected trademark portfolio may increase the valuation of your company. It helps to think of it as follows: If you are looking to sell your home, painting rooms, making minor repairs and sprucing up the curb appeal that might cost $10,000 may increase the market value of your home by $50,000. Trademarks can function in the same way. The relatively low registration fees can increase your company’s value by many times more the investment. The benefits are two-fold: first, a robust portfolio is likely to bring in more people to look at your company. Second, it increases the market value of your company.
Sale of Product
The same benefits apply if a company simply wants to sell a discrete product or technology to another company. It provides some assurance that, in addition to the relevant patent(s), the trademarks enjoy some level protection and, at the very least, the national trademark office considers the marks to be the property of the company.
Also, owning valid trademark registrations of the marks for the product to be sold can increase the value of the product and mark to the potential purchaser.
International Filing Benefits
Finally, if a company initiates sales locally (or nationally), possession of a trademark registration in one’s home country can simplify the process of protecting the mark internationally. Ownership of a trademark registration in one’s home country can provide a basis for filing future applications for the same mark in other countries. In some situations, it can also reduce the costs associates with protecting one’s mark internationally. These benefits will be discussed in future articles.
There are a number of benefits to seeking registration of one’s trademarks as early as possible. In addition to providing national trademark protection, certificates of registration may aid in obtaining additional investment and funding, selling products to third parties and obtaining future registrations throughout the world.
Don’t wait to register your trademarks. Trademarks are important to your company’s IP portfolio and the value of your business. Don’t forget your trademarks!
If you have any questions or would like additional information, please email Mathew or visit his firm’s web site here.